LPG Buyers in NWE Shun High Prices as Mediterranean Draws Product

24 Feb 2009 • by Natalie Aster

Propane and butane buyers in Northwest Europe are shunning the market because of expensive prices on the back of cold weather and demand in the Mediterranean drawing product away, trading sources said Monday.

"All sellers want to sell now, all buyers want to buy as late as possible," one source said.

"Buyers will wait for a week or so," another source said.

The spot price for North Sea propane was last assessed at $482.50/mt, nearly $120/mt over the price of naphtha on a CIF Northwest Europe basis, which was assessed at $363.50/mt. Butane was assessed at $392.50/mt, also at a premium over naphtha which typically discourages petrochemical buyers.

"Propane is still very high versus naphtha," the first source said. "[Petrochemical users] need butane at a discount to naphtha."

As a result, naphtha remains the feedstock of choice, sources said.

The propane price in NWE has risen recently on healthy buying stemming from the unusually cold winter, whereas supply has remained tight mostly due to limited availability in the Mediterranean, sources said.

Limited availability in the Mediterranean has also hit the butane price resulting in a $200/mt spread between prices in NWE and the Mediterranean, according to Platts data and market players.

The lack of supply is due to less production of LPG in the Middle East following recent OPEC crude cuts, sources said. Sources also said that there has been less production from Algeria, a major supplier in the Mediterranean.

In addition, Mediterranean refineries have been undergoing maintenance during January and February which also reduced the availability.

As a result, sellers in NWE have been supplying the Mediterranean leaving NWE short of LPG.

"As soon as the Mediterranean and Middle East supply improves, NWE will become long," a source said.